Porzio v. Overseas Shipholding Group, Inc. et al

Filing 113

OPINION AND ORDER re: 102 MOTION to Dismiss of Ernst & Young LLP, filed by Ernst & Young, 95 MOTION to Dismiss the Consolidated Amended Complaint, filed by PriceWaterhouseCoopers LLP, 85 MOTION to Dismiss NOTICE OF THE INDIVID UAL DEFENDANTS MOTION TO DISMISS PLAINTIFFS CONSOLIDATED AMENDED COMPLAINT, filed by Morten Arntzen, 86 MOTION to Dismiss /Notice of Motion to Dismiss Consolidated Amended Complaint, filed by Goldman, Sachs & Co., ING Financial Markets, LLC, Deutsche Bank Securities Inc., HSBC Securities (USA) Inc., Morgan Stanley & Co. LLC (f/k/a Morgan Stanley & Co. Incorporated), Citigroup Global Markets Inc., DNB Markets, Inc. (f/k/a DnB NOR Markets, Inc.). For the foregoing reasons, the motions to dismiss by E&Y, PwC, and the Underwriter Defendants are denied in full. The Individual Defendants' motion to dismiss is granted with respect to the Exchange Act claims and denied with respect to the Securities Act Claims. It is further Ordered that Plaintiffs are granted leave to replead within thirty days of the date of this Order. The Clerk of Court is directed to close these motions (Docket Nos. 85, 86, 95, 102). (Signed by Judge Shira A. Scheindlin on 9/10/2013) (ja)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

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)(

IN RE OSG SECURITIES LITIGATION

OPINION AND ORDER
12 Civ. 7948 (SAS)

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)(

SHIRA A. SCHEINDLIN, U.S.D.J.:
I.

INTRODUCTION

Lead Plaintiffs Stichting Pensioenfonds DSM Nederland ("DSM"),
Indiana Treasurer of State, and Lloyd Crawford (together, "Plaintiffs"), bring this
action on behalf of themselves and others similarly situated on the basis of a March
2010 Senior Notes Offering ("the Offering") by Overseas Shipholding Group, Inc.
("OSG" or "the Company"). OSG filed for bankruptcy on November 14, 2012,
and is not a party to this action. 1

See Consolidated Amended Complaint for Violations of the Federal
Securities Laws ("CAC") ,-r 9.
1

Plaintiffs name the following parties as defendants: Morten Arntzen 2,
Myles R. Itkin3 , G. Allen Andreas III, Alan R. Batkin, Thomas B. Coleman,
Charles Fribourg, Stanley Komaroff, Solomon N. Merkin, Joel I. Picket, Ariel
Recanati, Oudi Recanati, Thomas F. Robards, Jean-Paul Vettier, and Michael
Zimmerman4 (collectively, the “Individual Defendants”); PricewaterhouseCoopers
LLP (“PwC”) and Ernst & Young (“E&Y”) (collectively, the “Auditor
Defendants”); and Citigroup Global Markets Inc., Deutsche Bank Securities Inc.,
DNB Markets, Inc. (f/k/a DnB NOR Markets, Inc.), Goldman, Sachs & Co., HSBC
Securities (USA) Inc., ING Financial Markets LLC, and Morgan Stanley & Co.
LLC (f/k/a Morgan Stanley & Co. Incorporated) (collectively, the “Underwriter
Defendants”).5

2

Arntzen served as OSG’s President, Chief Executive Officer, and a
member of the Board of Directors. See id. ¶ 10(a).
3

Itkin served as OSG’s Vice President, Chief Financial Officer, and
Treasurer. See id. ¶ 10(b). Plaintiffs also allege that Itkin served on the Board of
Directors, although that fact is contested. See id.; Reply Memorandum of Law in
Support of the Individual Defendants’ Motion to Dismiss the Consolidated
Amended Complaint (“Indiv. Reply Mem.”) at 5 n.1.
4

The other individual defendants served as OSG Board members
during all or part of the Class Period. See CAC ¶ 3.
5

See id. ¶¶ 10–13.
2

The Class consists of all persons and entities who purchased OSG
Senior Notes pursuant to and/or traceable to the Offering, as well as purchasers of
OSG securities between March 1, 2010 and October 19, 2012, inclusive (the “Class
Period”).6
Plaintiffs assert claims under the following statutes: 1) Section 11 of
the Securities Act of 1933 (“Securities Act”) against all Defendants,7 2) Section
12(a)(2) of the Securities Act against the Individual Defendants and the
Underwriter Defendants,8 3) Section 15 of the Securities Act against the Individual
Defendants,9 4) Section 10(b) of the Securities Exchange Act of 1934 (“Exchange
Act”) and Rule 10b-5 against Arntzen and Itkin,10 and 5) Section 20(a) of the
Exchange Act against Arntzen and Itkin.11
In April and May of 2013, four different motions to dismiss were filed
pursuant to Federal Rule of Civil Procedure 12(b)(6). Ernst & Young (“E&Y”)

6

See id. ¶ 14.

7

See id. ¶¶ 91–103.

8

See id. ¶¶ 104–111.

9

See id. ¶¶ 112–115.

10

See id. ¶¶ 203–209.

11

See id. ¶¶ 210–212.
3

and PricewaterhouseCoopers LLP (“PwC”), the two Auditor Defendants, each
filed a motion to dismiss, as did the Underwriter Defendants and the Individual
Defendants. For the reasons that follow, the motions by E&Y, PwC, and the
Underwriter Defendants are denied in full, while the motion by the Individual
Defendants is granted in part and denied in part.
II.

BACKGROUND
A.

OSG’s Business Operations and Tax Liability

OSG is a tanker company with a fleet of over one hundred vessels
operating both domestically and internationally.12 The international fleet, which
constitutes about seventy-five percent of the Company’s vessels, is owned and
operated entirely by foreign subsidiaries of OSG International, Inc. (“OIN”), a
wholly owned subsidiary of OSG.13 From 1987 to 2004, OSG was required to pay
United States income taxes on the shipping income of its foreign subsidiaries,
including OIN.14 However, after the passage of the American Jobs Creation Act of

12

See id. ¶¶ 21–22.

13

See id. ¶¶ 22, 25.

14

See id. ¶¶ 29, 31.
4

2004 (the “Jobs Act”), OSG reported that it was no longer required to pay taxes on
undistributed foreign shipping income earned by its subsidiaries.15
Another tax provision relevant to OSG is Section 956 of Section F of
the Internal Revenue Code. Section 956 provides that, when a foreign subsidiary
guarantees the loans of a United States parent company, the “accumulated
‘earnings and profits’ of that subsidiary are deemed to have been distributed to the
U.S. parent company” and are thereby subject to United States federal income
taxation.16 Plaintiffs allege that OSG entered into various debt arrangements for
which OIN was jointly and severally liable, thereby triggering millions of dollars
in income tax liability under Section 956.17
B.

The Offering

On March 24, 2010, OSG conducted a public offering of three
hundred million dollars of unsecured notes.18 In connection with the Offering,
OSG filed a Shelf Registration Statement and Prospectus dated March 22, 2010
(the “Registration Statement”) and a Prospectus Supplement dated March 24, 2010

15

See id.

16

See id. ¶ 34.

17

See id. ¶ 37.

18

See id. ¶ 49.
5

(the “Prospectus”), among other preliminary filings.19 Each of the Individual
Defendants signed the Registration Statement.20 None of the filings or
incorporated financial statements disclosed the alleged tax liability under Section
956.21
C.

The Role of the Auditors

The Registration Statement and Prospectus incorporated the
Company’s 2009 Form 10-K by reference, and thereby the Company’s financial
statements from 2007, 2008, and 2009.22 E&Y served as OSG’s independent
registered public accounting firm from 1969 through June 15, 2009, and audited
OSG’s financial statements from 2005 through 2008.23 E&Y concluded that “the
financial statements [from 2007 and 2008] . . . present fairly, in all material
respects, the consolidated financial position of Overseas Shipholding Group, Inc.
and subsidiaries. . . .”24

19

See id. ¶ 48.

20

See id. ¶ 10(e).

21

See id. ¶¶ 60, 62, 67.

22

See id. ¶ 52.

23

See id. ¶ 12.

24

Id. ¶ 75.
6

PwC served as OSG’s independent registered public accounting firm
from June 17, 2009 to the present, and audited OSG’s financial statements for
2009.25 PwC’s audit opinion indicated that the 2009 financial statements “present
fairly, in all material respects, the financial position of Overseas Shipholding
Group, Inc. and its subsidiaries. . . .”26 PwC also concluded that “the Company
maintained, in all material respects, effective internal control over financial
reporting.”27 Both firms “expressly consented to having their unqualified audit
opinions for OSG’s financial statements [for years 2007 through 2009]
incorporated by reference into the Registration Statement.”28
D.

The Road to Bankruptcy

On October 3, 2012, Defendant Andreas resigned from his position on
OSG’s Board of Directors and Audit Committee.29 Andreas’s resignation letter
stated: “My resignation results from a disagreement with the Board as to the
process the Board is taking in reviewing a tax issue. In taking this action, I urge

25

See id. ¶ 12.

26

Id. ¶ 75.

27

Id.

28

Id. ¶ 97.

29

See id. ¶ 40.
7

you to report this issue to our auditors, PricewaterhouseCoopers LLP, prior to the
Company disclosing my resignation with the SEC.”30
On October 22, 2012, OSG filed a Form 8-K with the SEC indicating
that its previously issued financial statements for “at least three years ended
December 31, 2011 . . . should no longer be relied upon.”31 Later that day, S&P
lowered OSG’s credit rating based on the “high probability of very near-term
default.”32 On November 14, 2012, OSG filed for bankruptcy protection.33 In
connection with that proceeding, the Internal Revenue Service filed a Proof of
Claim stating that OSG owes the federal government over thirty-five million
dollars in corporate income tax plus 13.7 million dollars in interest, which were
accrued during 2004, 2005, 2009, 2010, and 2011.34
III.

STANDARD OF REVIEW AND PLEADING STANDARD
A.

Rule 12(b)(6) Motion to Dismiss

30

Id.

31

Id. ¶ 41.

32

Id. ¶ 42.

33

See id. ¶ 44.

34

See id. ¶ 46.
8

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the court
must “accept[] all factual allegations in the complaint as true, and draw[] all
reasonable inferences in the plaintiff’s favor.”35 The court “may consider the facts
alleged in the complaint, documents attached to the complaint as exhibits, and
documents incorporated by reference in the complaint.”36
The court evaluates the sufficiency of the complaint under the “twopronged approach” suggested by the Supreme Court in Ashcroft v. Iqbal.37 Under
the first prong, a court may “begin by identifying pleadings that, because they are
no more than conclusions, are not entitled to the assumption of truth.”38 For
example, “[t]hreadbare recitals of the elements of a cause of action, supported by
mere conclusory statements, do not suffice.”39 Under the second prong of Iqbal,
“[w]hen there are well-pleaded factual allegations, a court should assume their
veracity and then determine whether they plausibly give rise to an entitlement for

35

Wilson v. Merrill Lynch & Co., 671 F.3d 120, 128 (2d Cir. 2011)
(quoting Holmes v. Grubman, 568 F.3d 329, 335 (2d Cir. 2009)).
36

DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010).

37

See 556 U.S. 662, 678–79 (2009).

38

Id. at 679.

39

Id. at 678.
9

relief.”40 A claim is plausible “when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.”41 “The plausibility standard is not akin to a probability
requirement” because it requires “more than a sheer possibility that a defendant has
acted unlawfully.”42
B.

Heightened Pleading Standard under Rule 9(b) and the PSLRA
Private securities fraud claims are subject to a heightened pleading

standard. First, Federal Rule of Civil Procedure 9(b), which applies to allegations
of fraud or mistake, requires plaintiffs to allege the circumstances constituting
fraud with particularity. However, “Malice, intent, knowledge, and other
conditions of a person’s mind may be alleged generally.”43
Second, the Private Securities Litigation Reform Act (“PSLRA”)
provides that, in actions alleging securities fraud, “the complaint shall, with respect
to each act or omission alleged to violate this chapter, state with particularity facts
giving rise to a strong inference that the defendant acted with the required state of

40

Id. at 679.

41

Id. at 678.

42

Id. (quotation marks omitted).

43

Fed. R. Civ. P. 9(b).
10

mind.”44 In the Second Circuit, plaintiffs may meet the requirements of the
PSLRA by “alleging facts (1) showing that the defendants had both motive and
opportunity to commit the fraud or (2) constituting strong circumstantial evidence
of conscious misbehavior or recklessness.”45
C.

Leave to Amend
Whether to permit a plaintiff to amend its complaint is a matter

committed to a court’s “sound discretion.”46 Federal Rule of Civil Procedure 15(a)
provides that leave to amend a complaint “shall be freely given when justice so
requires.”47 “When a motion to dismiss is granted, the usual practice is to grant
leave to amend the complaint.”48 In particular, it is the usual practice to grant at
least one chance to plead fraud with greater specificity when a complaint is

44

15 U.S.C. § 74u-4(b)(2).

45

ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir.
2007) (citing Ganino v. Citizens United Co., 228 F.3d 154, 168–69 (2d Cir. 2000)).
46

McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir.

2007).
47

Fed. R. Civ. P. 15(a).

48

Hayden v. Cnty. of Nassau, 180 F.3d 42, 53 (2d Cir. 1999).
11

dismissed under Rule 9(b).49 Leave to amend should be denied, however, where
the proposed amendment would be futile.50
IV.

APPLICABLE LAW
A.

The Securities Act Claims
1.

Section 11 Standard

Section 11 provides purchasers of registered securities with strict
liability protection where “any part of the registration statement, when such part
became effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.”51 To establish a prima facie claim under
Section 11, “[a] plaintiff need only plead a material misstatement or omission in the
registration statement.”52 Liability is limited, however, to certain statutorily
enumerated parties:

49

See ATSI, 493 F.3d at 108.

50

See Dougherty v. Town of N. Hempstead Bd. of Zoning Appeals, 282
F.3d 83, 87–88 (2d Cir. 2002).
51

15 U.S.C. § 77k(a) (1998).

52

City of Roseville Emps. Ret. Sys. v. EnergySolutions, Inc., 814 F.
Supp. 2d 395, 424 (S.D.N.Y. 2011) (quoting In re Flag Telecom Holdings, Ltd.
Secs. Litig., 411 F. Supp. 2d 377, 382 (S.D.N.Y. 2006), abrogated on other
grounds, 574 F.3d 29 (2d Cir. 2009)).
12

(1) signatories of the registration statement; (2) directors or
partners of the issuer at the time of filing; (3) persons consenting
to be named as about to become a director or partner; (4)
accountants or other experts consenting to be named as preparing
or certifying part of the registration statement; and (5)
underwriters of the security at issue.53
The statute provides an affirmative defense for experts who can prove that, after
reasonable investigation, they honestly and reasonably believed that the portion of
the registration statement they prepared or certified was free from material
misstatements or omissions.54 The statute provides a similar affirmative defense for
non-experts, such as underwriters, who reasonably relied on the accuracy of expert
reports or valuations contained in the registration statement.55
2.

Section 12(a)(2) Standard

Section 12(a)(2) holds any person liable who “offers or sells a
security” by means of a materially false or misleading “prospectus or oral
communication.”56 The elements of a prima facie claim under Section 12(a)(2) are:
(1) the defendant is a ‘statutory seller’; (2) the sale was
effectuated ‘by means of a prospectus or oral communication’;
53

In re Lehman Bros. Mortg.-Backed Secs. Litig., 650 F.3d 167, 175 (2d
Cir. 2011) (citing 15 U.S.C. § 77k(a)).
54

See 15 U.S.C. § 77k(b)(3)(B).

55

See id. § 77k(b)(3)(C).

56

See id. § 77l(a)(2).
13

and (3) the prospectus or oral communication ‘include[d] an
untrue statement of a material fact or omit[ted] to state a material
fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.’57
A “statutory seller” is defined as a person who either passes title to the plaintiff for
value or successfully solicits the purchase, “motivated at least in part by a desire to
serve his own financial interests or those of the securities[’] owner.”58
3.

Loss Causation

Sections 11 and 12 shield Defendants from liability for any portion of
the Plaintiffs’ damages not caused by the Defendants’ misrepresentations or
omissions.59

57

In re Morgan Stanley Info. Fund Secs. Litig., 592 F.3d 347, 359 (2d
Cir. 2010) (quoting 15 U.S.C. §77l (a)(2)).
58

Capri v. Murphy, 856 F.2d 473, 478 (2d Cir. 1988) (citing Pinter v.
Dahl, 486 U.S. 622, 647 (1988)) (applying Pinter standard to 12(a)(2) claims).
59

See 15 U.S.C. § 77k(e) (providing that, “[I]f the defendant proves that
any portion or all of such damages represents other than the depreciation in value
of such security resulting from such part of the registration statement[] with respect
to which his liability is asserted . . . such portion of or all such damages shall not
be recoverable”); Id. § 77l (b) (“[I]f the person who offered or sold such security
proves that any portion or all of the amount recoverable under subsection (a)(2) of
this section represents other than the depreciation in value of the subject security
resulting from such part of the prospectus or oral communication[] with respect to
which the liability of that person is asserted . . . then such portion or amount, as the
case may be, shall not be recoverable.”).
14

The burden of proving such negative causation rests on the Defendants.60
4.

When Rule 9(b) Applies to Section 11 and 12 Claims

While fraud is not an element of a claim under Section 11 or 12, the
Second Circuit has held that “the heightened pleading standard of Rule 9(b) applies
to Section 11 and Section 12(a)(2) claims “insofar as the claims are premised on
allegations of fraud,” especially where “the wording and imputations of the
complaint are classically associated with fraud.”61 Bare disclaimers are insufficient
to shield any claims that actually sound in fraud from the requirements of Rule
9(b).62 However, Plaintiffs may “plead Section 10(b) fraud and Section 11
negligence claims as alternatives, as long as the complaint is organized in a way
that allows the court to determine which allegations support which claim.”63
60

See id. §§ 77k(e), 77l (b).

61

Rombach v. Chang, 355 F.3d 164, 171–72 (2d Cir. 2004).

62

See In re Refco, Inc. Secs. Litig., 503 F. Supp. 2d 611, 633 (S.D.N.Y.
2007); In re Axis Capital Holdings Ltd. Secs. Litig., 456 F. Supp. 2d 576, 598
(S.D.N.Y. 2006); In re JP Morgan Chase Secs. Litig., 363 F. Supp. 2d 595, 635
(S.D.N.Y. 2005).
63

Wallace v. IntraLinks, No. 11 Civ. 8861, 2013 WL 1907685, at *11
(S.D.N.Y. May 8, 2013) (citing Refco, 503 F. Supp. 2d at 632). Accord In re
NovaGold Res. Inc. Secs. Litig., 629 F. Supp. 2d 272, 290 (S.D.N.Y. 2009)
(“Defendants identify no controlling authority finding that Securities Act
allegations, when plead entirely separately from Exchange Act allegations, and
accompanied by a disclaimer explaining that they sound in negligence, in fact
sound in fraud.”).
15

“[U]nless a plaintiff specifically pleads a claim of fraud, a claim under Section 11
of the Securities Act is not subject to the heightened pleading standard of Federal
Rule of Civil Procedure 9(b). Rather, it is subject to the ‘short and plain statement’
requirements of Rule 8(a), and thus places a relatively minimal burden on a
plaintiff.”64
B.

Section 10(b) and Rule 10b-5 of the Exchange Act
Section 10(b) of the Securities Exchange Act of 1934 prohibits using

or employing, “in connection with the purchase or sale of any security . . . any
manipulative or deceptive device or contrivance. . . .”65 Rule 10b-5, promulgated
thereunder, makes it illegal to “make any untrue statement of a material fact or to
omit to state a material fact . . . in connection with the purchase or sale of any
security.”66 To sustain a claim for securities fraud under Section 10(b), “a plaintiff
must prove (1) a material misrepresentation or omission by the defendant; (2)
scienter; (3) a connection between the misrepresentation or omission and the

64

Employees’ Ret. Sys. of the Virgin Islands v. JP Morgan Chase & Co.,
804 F. Supp. 2d 141, 151 (S.D.N.Y. 2011) (quotations and citations omitted).
Accord Panther Partners Inc. v. Ikanos Commc’ns, Inc., 681 F.3d 114, 120 (2d
Cir. 2012) (quoting Litwin v. Blackstone Grp. LP, 634 F.3d 706, 716 (2d Cir.
2011)).
65

15 U.S.C. § 78j(b) (1934).

66

17 C.F.R. § 240.10b-5 (1951).
16

purchase or sale of a security; (4) reliance upon the misrepresentation or omission;
(5) economic loss; and (6) loss causation.”67 The required level of scienter is either
“intent to deceive, manipulate, or defraud”68 or “reckless disregard for the truth.”69
Claims under Section 10(b) must meet the heightened pleading standards of both
Rule 9(b) and the PSLRA.70
C.

Section 20(a) of the Exchange Act
Section 20(a) of the Exchange Act creates a cause of action against

“control persons” of the primary violator.71 “To establish a prima facie case of
control person liability, a plaintiff must show (1) a primary violation by the
controlled person, (2) control of the primary violator by the defendant, and (3) that
the defendant was, in some meaningful sense, a culpable participant in the

67

Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S.
148, 157 (2008).
68

Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 (1976).

69

South Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 109 (2d
Cir. 2009) (“By reckless disregard for the truth, we mean ‘conscious
recklessness— i.e., a state of mind approximating actual intent, and not merely a
heightened form of negligence.’” (quoting Novak v. Kasaks, 216 F.3d 300, 308 (2d
Cir. 2000))).
70

See supra, Part III.B.

71

See 15 U.S.C. § 78t(a).
17

controlled person's fraud.”72 Where there is no primary violation, there can be no
“control person” liability under Section 20(a).73
V.

DISCUSSION
A.

Sections 11 and 12 of the Securities Act
1.

Auditor Defendants
a.

Liability Based on the Audit Opinions

Section 11 creates liability for experts such as accountants who
certified any part of the Registration Statement containing actionably false
information, or who “prepared any report or valuation used in connection with the
registration statement.”74 With respect to “matters of belief and opinion,” however,
Section 11 liability attaches only where the statement was “both objectively false
and disbelieved by the defendant at the time it was expressed.”75 The above
72

ATSI, 493 F.3d at 108.

73

See id.; see also In re eSpeed, Inc. Secs. Litig., 457 F. Supp. 2d 266,
297–98 (S.D.N.Y. 2006).
74

15 U.S.C. 77k(a)(4) (holding liable “every accountant . . . who has
with his consent been named as having prepared or certified any part of the
registration statement, or as having prepared or certified any report or valuation
which is used in connection with the registration statement”).
75

Fait, 655 F.3d at 110 (requiring subjective disbelief to find Section 11
and 12 liability for valuations of goodwill and the adequacy of loan loss reserves).
Accord Freidus v. Barclays Bank PLC, — F. 3d —, No. 11 Civ. 2665, 2013 WL
4405291, at *6 (2d Cir. Aug. 19, 2013) (applying Fait’s subjective disbelief
18

standard applies where the statements at issue are “inherently subjective” as
opposed to “matters of objective fact.”76
The Auditor Defendants contend that their Audit Opinions are
statements of opinion subject to Fait’s subjective disbelief standard.77 Although
they concede that they consented to the inclusion of their Auditor Opinions in the
Registration Statement, the Auditor Defendants claim that they did not “certify” the
truth of the financial statements audited and thus cannot be held liable for the
information contained therein.78 They move to dismiss on the grounds that

requirement to subjective financial valuations).
76

Fait, 655 F.3d at 110 (“[P]laintiff’s allegations regarding goodwill do
not involve misstatements or omissions of material fact, but rather a misstatement
regarding Regions’ opinion. Estimates of goodwill depend on management’s
determination of the ‘fair value’ of the assets acquired and liabilities assumed,
which are not matters of objective fact . . . . In other words, the statements
regarding goodwill at issue here are subjective ones rather than ‘objective factual
matters.’”); Id. at 113 (applying subjective disbelief standard to statements
concerning the adequacy of loan loss reserves, since “Plaintiff does not point to an
objective standard for setting loan loss reserves” and “[s]uch a determination is
inherently subjective, and like goodwill, estimates will vary depending on a variety
of predictable and unpredictable circumstances”).
77

See Memorandum of Ernst & Young LLP in Support of Its Motion to
Dismiss (“E&Y Mem.”) at 6; Memorandum of Law in Support of Motion to
Dismiss by Defendant PricewaterhouseCoopers LLP (“PwC Mem.”) at 7.
78

See Reply Memorandum of Law of Ernst & Young LLP in Support of
its Motion to Dismiss (“E&Y Reply Mem.”) at 7; Reply Memorandum of Law in
Support of Motion to Dismiss by Defendant PricewaterhouseCoopers (“PwC Reply
Mem.”) at 2.
19

Plaintiffs have not alleged that the Auditor Defendants subjectively disbelieved the
Audit Opinions.79
Plaintiffs argue that the Audit Opinions effectively certified the
accuracy of OSG’s financial statements and rendered the Auditors strictly liable
under Section 11 for the actionably false information contained therein.80 Thus,
Plaintiffs argue, they need not allege subjective falsity under Fait.81
In this case, the alleged misstatements and omissions contained in the
Registration Statement center upon the failure to disclose OSG’s significant tax
liabilities under Section 956. Although the Internal Revenue Code is complex and

79

See, e.g., CAC ¶ 92 (plaintiffs “affirmatively state that they do not
claim that Defendants committed intentional or reckless misconduct or that
Defendants acted with scienter or fraudulent intent”).
80

See Pl. Opp. at 30–32.

81

See id. at 31 n.14. Plaintiffs also argue that they need not show
subjective disbelief if the Auditor Defendants lacked a reasonable belief in the
truth of their statements. See Lead Plaintiff’s Omnibus Memorandum of Law in
Opposition to Defendants’ Motions to Dismiss the Amended Complaint (“Pl.
Opp.”) at 32 (“Plaintiffs do not need to plead that [defendants] acted with the
scienter of intent or recklessness. Rather . . . to allege that an auditor opinion is a
misrepresentation, a complaint must show that the statement in question is
grounded on a specific factual premise that is false, and that the speaker did not
‘genuinely or reasonably believe’ it.” (citing In re Longtop Fin. Techs. Ltd. Secs.
Litig., 910 F. Supp. 2d 561, 580 (S.D.N.Y. 2012))). However, despite any dicta to
the contrary, subjective disbelief is required to allege a Section 11 violation based
on inherently subjective statements, not “unreasonable belief.” See Fait, 655 F.3d
at 110.
20

often gives rise to debate, it cannot be said that statements of income tax liability
are “subjective valuations.”82 There is in fact an objective measure of income tax
liability, as evidenced by OSG’s public declaration that its financial statements
should “no longer be relied upon,”83 as well as the IRS’s Proof of Claim in OSG’s
bankruptcy proceedings.
Defendants argue that the entire Audit Opinion is a statement of belief
or opinion under Fait because it contains the word “opinion” in its title, and
prefaces its conclusions with the phrase “in our opinion.”84 However, it would
render Section 11 meaningless to find that an accountant’s liability turns on this

82

Friedus, 2013 WL 4405291, at *6 (applying subjective disbelief
standard to “financial valuation models which are inherently subjective,” including
writedowns of mortgage-related assets). Even prior to Fait, courts in this district
have required allegations of disbelief where the statements involved inherently
subjective matters – such as real estate appraisals, securities ratings, and valuations
of complex securitized holdings. Lighthouse Fin. Grp. v. The Royal Bank of
Scotland Grp., PLC, No. 11 Civ. 398, 2012 WL 4616958, at *11 (S.D.N.Y. Sept.
28, 2012) (valuations of complex securitized holdings); Tsereteli v. Residential
Asset Securitization, 692 F. Supp. 2d 387 (S.D.N.Y. 2010) (securities ratings by
rating agencies); In re IndyMac Mortg.-Backed Secs. Litig., 718 F. Supp. 2d 495
(S.D.N.Y. 2010) (real estate appraisals); In re Global Crossing, Ltd. Secs. Litig.,
313 F. Supp. 2d 189 (S.D.N.Y. 2003) (individual’s personal opinion that a
transaction is “fair”). The applicability of a tax provision, however, does not fall
into the same “inherently subjective” category.
83

CAC ¶ 41.

84

See E&Y Reply Mem. at 7; PwC Reply Mem. at 6.
21

semantic choice.85 Auditors may not shield themselves from liability under Section
11 merely by using the word “opinion” as a disclaimer. Plaintiffs are only required
to allege subjective disbelief where the statements concern “inherently subjective”
matters rather than “matters of objective fact.”86
The Auditor Defendants’ broad reading of Fait would undercut the
statutory language establishing strict liability for accountants based on the materials
they have certified. It is difficult to imagine what Congress might have meant by an
accountant’s certification if not an audit affirming the accuracy of the documents in
question.87 Here, the Audit Opinions allegedly endorsed the accuracy of the tax
85

PwC argues that when Section 11 was enacted, the common practice
of auditors was to “certify” financial statements, whereas the modern practice is to
merely issue “opinions” on the accuracy of those financial statements. PwC Reply.
Mem. at 7 n.3.
86

Fait, 655 F.3d at 110, 113.

87

Courts in this district have consistently found that accountants bear
Section 11 liability for the portions of a Registration Statement that they audited.
See In re Wachovia Equity Secs. Litig., 753 F. Supp. 2d 326, 378–79 (S.D.N.Y.
2011) (finding possible Section 11 liability against auditors based on financial
statements they audited as well as statements in their audit reports); Amorosa v.
Ernst & Young LLP, 672 F. Supp. 2d 493, 513 (S.D.N.Y. 2009), aff’d, 409 Fed.
Appx. 412 (2d Cir. 2011) (auditors subject to Section 11 liability for any actionable
misstatements in financial statements they audited); In re WorldCom, Inc. Secs.
Litig., 352 F. Supp. 2d 472, 492 (S.D.N.Y. 2005) (auditor’s opinion that
company’s “financial statements present fairly, in all material respects, the
financial position of the company” constituted certification of “each material
statement within the financial statements and to the financial statements taken as a
whole,” and thus subjected auditor to strict liability under Section 11); In re Global
22

liabilities disclosed in OSG’s financial statements. Because those statements of tax
liability are not “inherently subjective”88 valuations, Plaintiffs have adequately
stated a claim against the Auditor Defendants under Section 11 without alleging
subjective disbelief.
The Auditor Defendants will have the opportunity to establish a “due
diligence” defense by showing that their interpretation of Section 956 was
reasonable and that they conducted a reasonably diligent audit.89 At this stage,
however, the Auditor Defendants’ motions to dismiss are denied.
b.

Lack of Material Misstatement Against E&Y

Defendant E&Y separately moves to dismiss the Section 11 claims
because Plaintiffs do not allege any misstatement in OSG’s tax liability from 2007
or 2008, the only two years during the Class Period for which E&Y performed an

Crossing, Ltd. Secs. Litig., 322 F. Supp. 2d 319, 348–49 (S.D.N.Y. 2004)
(upholding Section 11 claims against outside auditor for having audited allegedly
false and misleading financial statements); Escott v. BarChris Constr. Corp., 283
F. Supp. 643, 683–84 (S.D.N.Y. 1968) (finding accountants subject to Section 11
liability for balance sheets and earnings statements that they audited and approved
in their auditors’ report). Although these cases were decided prior to Fait, their
interpretation of what constitutes “certification” under Section 11 is instructive.
88

Fait, 655 F.3d at 110.

89

See 15 U.S.C. 77k(b)(3)(B).
23

audit.90 Plaintiffs admit that the IRS does not seek back taxes from those years.91
Thus, E&Y asserts, Plaintiffs have not alleged a material misstatement or omission
against E&Y based on its Audit Opinion or the 2007–2008 financial statements.
Plaintiffs respond that OSG’s financial statements from 2007 and 2008
“were required to include all liabilities as of those dates,” including the significant
tax liabilities that had accrued in 2004 and 2005.92 Assuming Plaintiffs’ allegations
are correct that the financial statements in question were required to disclose past
income tax liability and did so inaccurately or incompletely, then the 2007 and 2008
financial statements may in fact contain material misstatements or omissions giving
rise to Section 11 liability. Thus, Plaintiffs have adequately stated a claim for relief
on the basis of E&Y’s audits despite the fact that no new income tax liability
accrued during fiscal years 2007 or 2008.
2.

Underwriter Defendants
a.

Reliance Defense

90

See E&Y Mem. at 4–6.

91

See CAC ¶¶ 46–47.

92

Pl. Opp. at 34.
24

Section 11 provides an affirmative defense for underwriters who “shall
sustain the burden of proof”93 that, with respect to any expert report incorporated
into the registration statement, the underwriter “had no reasonable ground to believe
and did not believe” that the report contained misstatements or omissions of
material fact.94 In rare cases it may be appropriate for courts to dismiss a claim on
the basis of an affirmative defense, but only where “it appears beyond doubt that the
plaintiff can prove no set of facts in support of [its] claim that would entitle [it] to
relief”95 and “the complaint itself establishes the facts necessary to sustain
defendant’s . . . defense.”96
The Underwriter Defendants assert that their reliance on the audited
financial statements was per se reasonable, given that Plaintiffs have not alleged

93

15 U.S.C. § 77k(b).

94

Id. § 77k(b)(3)(C). See also id. § 77l (a)(2) (providing affirmative
defense where defendant “did not know, and in the exercise of reasonable care
could not have known, of such untruth or omission” contained in the prospectus or
oral communication).
95

McKenna v. Wright, 386 F.3d 432, 436 (2d Cir. 2004) (citing
Citibank, N.A. v. K–H Corp., 968 F.2d 1489, 1494 (2d Cir. 1992)).
96

Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 75 (2d Cir.

1998).
25

any “red flags” that might have put the Underwriter Defendants on notice.97
Because this defense appears on the face of the Complaint, they argue, the claims
must be dismissed.98
Despite the Underwriter Defendants’ contention that reliance is per se
reasonable in the absence of red flags, no such rule of law exists. Most of the
Underwriter Defendants’ cases address the reliance defense in the context of a
motion for summary judgment, not a motion to dismiss.99 One case even
acknowledges that the reasonableness of reliance is “generally a fact issue, rarely
suitable for summary judgment, let alone a motion to dismiss.” 100 Plaintiffs have
adequately alleged that Defendants served as underwriters in a securities offering
that employed a materially false or misleading registration statement. Plaintiffs are
not required to additionally plead red flags or facts negating the Underwriters’

97

See The Underwriter Defendants’ Memorandum of Law in Support of
Their Motion to Dismiss the Consolidated Amended Complaint (“Underwriter
Mem.”) at 8–11.
98

See id.

99

See In re Software Toolworks, Inc. Secs. Litig. 50 F.3d 615, 623 (9th
Cir. 1994); In re Worlds of Wonder Secs. Litig., 35 F.3d 1407, 1421 (9th Cir.
1994); Phillips v. Kidder, 933 F. Supp. 303, 323–24 (S.D.N.Y. 1996).
100

In re Countrywide Fin. Corp. Secs. Litig., 588 F. Supp. 2d 1132, 1175
(C.D. Cal. 2008).
26

defense. Thus, the Underwriter Defendants’ motion to dismiss on this ground is
denied.
b.

Loss Causation

The Underwriter Defendants further allege that they are entitled to
dismissal because they cannot have caused the Plaintiffs’ losses. The Underwriter
Defendants assert that their loss causation defense is “apparent on the face of the
complaint” because the magnitude of tax liability asserted to have arisen during the
Offering Period is “de minimis” in relation to OSG’s overall liability prior to filing
for bankruptcy.101 Specifically, the Underwriter Defendants contend that only two
percent of OSG’s total tax liability arose during the Offering Period, and such a
small amount cannot have caused the drop in value of the notes and OSG’s
subsequent bankruptcy as a matter of law.102
The Underwriter Defendants misconstrue the loss causation defense in
several ways. First, the defense is proportional, and only applies to that portion of
the damages for which the defendant establishes negative causation.103 Because the
101

The Underwriter Defendants’ Reply Memorandum of Law in Support
of Their Motion to Dismiss the Consolidated Amended Complaint (“Underwriter
Reply Mem.”) at 12–13.
102

See id. at 13.

103

See 15 U.S.C. § 77k(e) (“[I]f the defendant proves that any portion or
all of such damages represents other than the depreciation in value of such security
27

Underwriter Defendants cannot allege that none of Plaintiffs’ damages are causally
connected to the tax liability from the Offering Period, Plaintiffs’ claims cannot be
dismissed at this stage.
Second, “it is the defendant who bears the burden of demonstrating that
something other than the misstatement at issue caused plaintiff’s loss.”104 Plaintiffs
dispute Defendants’ characterization of the tax liability attributable to the Offering
Period,105 and plausibly allege that such undisclosed tax liability was at least a
partial cause of the drop in the value of OSG securities. Because it is not clear
whether and to what extent the loss causation defense applies at this stage, the
Underwriter Defendants’ motion to dismiss is denied.
3.

Individual Defendants

resulting from such part of the registration statement[] with respect to which his
liability is asserted . . . such portion of or all such damages shall not be
recoverable.”) (emphasis added); Id. § 77l(b) (“[I]f the person who offered or sold
such security proves that any portion or all of the amount recoverable under
subsection (a)(2) of this section represents other than the depreciation in value of
the subject security resulting from such part of the prospectus or oral
communication[] with respect to which the liability of that person is asserted . . .
then such portion or amount, as the case may be, shall not be recoverable.”)
(emphasis added).
104

Flag Telecom, 574 F.3d at 36. See also 15 U.S.C. § 77k(e) (“if the
defendant proves. . .”); id. § 77l (b) (“if the person who offered or sold such
security proves. . .”).
105

See Pl. Opp. at 29.
28

The Individual Defendants argue that the Section 12 claims against
them must be dismissed because Plaintiffs have not established that the Individual
Defendants are “statutory sellers.”106 Given that Plaintiffs do not allege a direct sale
of securities by the Individual Defendants, they must show that the Individual
Defendants “successfully solicit[ed]” the purchase of securities, and were
“motivated at least in part by a desire to serve [their] own financial interests or
those of the securities owner.”107 The Individual Defendants contend that merely
signing a registration statement does not constitute “solicitation,” and that the
Company’s proceeds from the Offering do not constitute the Individual Defendants’
“own financial interests.”108 Thus, the Individual Defendants argue, they cannot be
held liable under Section 12.
Plaintiffs cite various cases for the proposition that signing a
registration statement or prospectus constitutes solicitation.109 However, more

106

See Morgan Stanley, 592 F.3d at 359 (only “statutory sellers” are
subject to liability under Section 12).
107

Capri, 856 F.2d at 478 (citing Pinter, 486 U.S. at 647) (applying
Pinter standard to Section 12(a)(2) claims).
108

See Memorandum of Law in Support of the Individual Defendants’
Motion to Dismiss the Consolidated Amended Complaint (“Indiv. Mem.”) at
24–25.
109

See Briarwood Inv. Inc. v. Care Inv. Trust Inc., No. 07 Civ. 8159,
2009 WL 536517, at *4 (S.D.N.Y. Mar. 4, 2009); Flag Telecom, 352 F. Supp. 2d
29

recent cases from this district have come to the opposite conclusion.110 Although
the Second Circuit has not directly addressed the issue, several Courts of Appeals
have held that merely signing the registration statement or prospectus does not
constitute solicitation.111 This reasoning is consistent with the Supreme Court’s

at 454; Steed Fin. LDC v. Nomura Secs. Int’l, Inc., No. 00 Civ. 5058, 2001 WL
1111508, at *7 (S.D.N.Y. Sept. 20, 2001); In re APAC Teleservices, Inc. Secs.
Litig., No. 97 Civ. 9145, 1999 WL 1052004, at *11 (S.D.N.Y. Nov. 19, 1999).
110

See City of Westland Police & Fire Ret. Sys. v. MetLife, Inc., No. 12
Civ. 0256, 2013 WL 775434, at *9 (S.D.N.Y. Feb. 28, 2013) (dismissing Section
12 claim where plaintiffs claimed “solicitation by the director defendants based on
the fact that they signed the registration statements”); McKenna, 2012 WL
1131935, at *18 (same); Citiline Holdings, Inc. v. iStar Fin., Inc., 701 F. Supp. 2d
506, 512 (S.D.N.Y. 2010) (“While Section 11 expressly imposes liability upon
every signer of the registration statement, Section 12 does not do so. Plaintiffs’
position would render this distinction a nullity and is, in any event, inconsistent
with Pinter’s statement that Congress did not intend to impose liability under
Section 12 ‘for mere participation in unlawful sales transactions.’” (citing Pinter,
486 U.S. at 650)). Compare In re Vivendi Universal, S.A. Secs. Litig., 381 F. Supp.
2d 158, 187 (S.D.N.Y. 2003) (complaint adequately alleged that corporate CEO
was statutory seller where he “actively participated in the preparation of the
allegedly misleading or false registration statement” and “regularly appeared
before investors and financial news agencies to tout the financial vitality of
Vivendi and thereby encourage investors to purchase Vivendi’s securities”).
111

See Rosenzweig v. Azurix Corp., 332 F.3d 854, 871 (5th Cir. 2003)
(“the seller must, at a minimum, directly communicate with the buyer”); Shaw v.
Digital Equip. Corp., 82 F.3d 1194, 1216 (1st Cir. 1996), superceded by statute on
other grounds, 15 U.S.C. § 78u–4(b)(1)–(2) (“[N]either involvement in preparation
of a registration statement or prospectus nor participation in ‘activities’ relating to
the sale of securities, standing alone, demonstrates the kind of relationship between
defendant and plaintiff that could establish statutory seller status.”); Craftmatic
Secs. Litig. v. Kraftsow, 890 F.2d 628, 636 (3d Cir. 1989) (requiring “direct and
active participation in the solicitation of the immediate sale to hold the issuer
30

conclusion in Pinter that Congress did not intend to impose Section 12 liability on
“participants collateral to the offer or sale,” or those whose conduct constituted
merely “substantial participation” in the sale.112
In this case, however, Plaintiffs allege that the Individual Defendants
did more than sign the Registration Statement. The Complaint states that the
Individual Defendants “prepar[ed] the defective and inaccurate Prospectus and
participat[ed] in efforts to market the Offering to investors.”113 These allegations go
beyond the bare assertion that the Individual Defendants signed the Registration
Statement, and suggest the plausible inference that the Individual Defendants
played an active role in marketing the securities to Plaintiffs.114
In addition to pleading active solicitation, Plaintiffs must further plead
that the Individual Defendants were motivated “at least in part by a desire to serve
[their] own financial interests or those of the securities owner.”115 According to the

liable” under 12(a)(2)).
112

Pinter, 486 U.S. at 650.

113

CAC ¶ 108.

114

See In re IndyMac Mortg.-Backed Secs. Litig., 718 F. Supp. 2d 495,
502 (S.D.N.Y. 2010) (pleadings sufficient where plaintiffs alleged that defendants
“solicited, sold and distributed” the securities, and also “promoted and sold” the
securities for personal gain).
115

Pinter, 486 U.S. at 647.
31

Complaint, “Defendants solicited such purchases for their personal financial gain,
as OSG received over $289 million in proceeds.”116 Defendants argue that the
Company’s financial gain does not necessarily constitute personal gain for its
officers and directors.117 Indeed, personal financial gain is clearest in cases where
the defendant receives a commission or other direct remuneration from the sale.118
That said, many courts have taken a more expansive view of financial gain that
includes increased compensation tied to share price or company performance.119 In

116

Pl. Opp. at 22 (citing CAC ¶¶ 42, 104).

117

See In re Scottish Re Grp. Secs. Litig., 524 F. Supp. 2d 370, 400
(S.D.N.Y. 2007) (proceeds from sale of securities constituted financial gain to the
issuer rendering issuer a statutory seller).
118

See, e.g., Independent Energy Holdings PLC Secs. Litig., 154 F. Supp.
2d 741, 751, 760–61 (S.D.N.Y. 2001), abrogated on other grounds by In re Initial
Pub. Offering Secs. Litig., 544 F. Supp. 2d 277 (S.D.N.Y. 2008) (“The allegation
of financial gain in the SAC — that these Individual Defendants stood to gain more
than $30 million in capital from the Secondary Offering — is sufficient to meet the
second prong.”).
119

See Meadows v. SEC, 119 F.3d 1219, 1226 (5th Cir. 1997) (finding
financial gain where, although receiving no salary or commission from the sale,
defendant was shareholder of issuing companies and “thereby stood to benefit
personally from the additional investments he solicited”); Capri, 856 F.2d at 478
(finding defendants to be statutory sellers of the company’s securities based on
their stake in the company as general partners); Vivendi, 381 F. Supp. 2d at 187
(finding CEO to be statutory seller where salary and bonuses were tied to
Company’s revenues); In re Keegan Mgmt. Co. Secs. Litig., No. 91–20084, 1991
WL 253003, at *8 (N.D. Cal. Sept. 10, 1991) (finding that officers benefitted
financially from securities sales by protecting their positions and compensation, as
well as enhancing the value of their own holdings in company’s securities, and
32

fact, although the defendant in Pinter received no commission, the Supreme Court
remanded for the district court to determine whether he nonetheless had a financial
interest in the sale.120 Here, Plaintiffs allege that the Individual Defendants stood to
gain personally from the Offering by virtue of their continued positions and
salaries, since the survival of the Company was at stake.121 Such benefits are
sufficient to constitute the Individual Defendants’ “own financial interests” under
Pinter.
Moreover, a defendant need not act out of personal financial
motivation if he acts to serve the interests of the securities owner.122 Given their

noting that plaintiffs need only allege “that the stock sales improved defendants’
financial position,” rather than alleging “that the sale translated into an immediate
increase in defendants’ wealth”); Flournoy v. Peyson, 701 F. Supp. 1370, 1379
n.12 (N.D. Ill. 1988) (noting that defendant need not receive proceeds from the
sales, given that “the sales promoted the viability of [the Company], in which
[defendant] had a direct stake”).
120

See Pinter, 486 U.S. at 655 .

121

See Pl. Opp. at 42 (“the very existence of the Company was at stake,
and by extension Arntzen and Itkin’s lucrative positions with the company”).
Although the above allegation was made in the context of Plaintiffs’ Section 10(b)
claims against Arntzen and Itkin, it equally supports the inference that all the
Individual Defendants stood to lose their positions and/or salaries with the
Company if the Offering failed.
122

See Pinter, 486 U.S. at 655 (“[A] person who solicits the buyer’s
purchase in order to serve the financial interests of the owner may properly be
liable under Section 12(1) without showing that he expects to participate in the
benefits the owner enjoys.”); SEC v. Tuchinsky, No. 89–6488–CIV, 1992 WL
33

positions as officers and directors of the Company, the Individual Defendants likely
participated in the Offering in order to benefit OSG — if not themselves.
Therefore, Plaintiffs have adequately alleged that the Individual Defendants were
motivated by either their own financial interests or those of the securities owner.
4.

Arntzen and Itkin

Defendants Arntzen and Itkin claim that Plaintiffs’ Section 11 and 12
claims against them are subject to the heightened pleading standard of Rule 9(b)
because the claims “sound in fraud.”123 Specifically, Plaintiffs accuse the Individual
Defendants of “false and misleading representations and omissions,” 124 and
repeatedly state that they “knew or should have known of the material
misstatements or omissions.”125 According to Defendants, such language is “not
limited to the Section 10(b) claim; [it] permeate[s] other parts of the Amended
Complaint as well.”126

226302, at *4 (S.D. Fl. June 29, 1992) (“Cannon admits that he acted on behalf of
SW Computer in his capacity as president . . . . It is therefore unnecessary to show
that he also had his own financial interests at heart in orchestrating the sale of
ICOM stock.”).
123

Indiv. Mem. at 22.

124

Id. at 21–22 (citing CAC at ¶¶ 17, 19(c), 57, 59, 61).

125

Id. at 22 (citing CAC at ¶¶ 95, 56, 93, 108).

126

Id. at 21.
34

Defendants point to Rombach v. Chang, in which the Second Circuit
held that phrases like “inaccurate and misleading,” “untrue statements of material
facts” and “materially false and misleading written statements” were allegations of
fraud subject to Rule 9(b).127 However, the above passage “presents something of a
conundrum”128 for lower courts, because the language cited in Rombach tracks
verbatim the elements of a Section 11 claim as set out in the statute.129 Applied
literally, the passage “would seem to require applying a 9(b) standard to all claims
under § 11.”130 However, “[i]t is clear that the Second Circuit did not intend
Rombach as an instruction that all § 11 pleadings should be subjected to the Rule
9(b) standard.”131 To the contrary, Rombach provides that Rule 9(b) only applies to
Section 11 claims on a case-by-case basis where they are “premised on allegations

127

Rombach, 355 F.3d at 171.

128

Refco, 503 F. Supp. 2d at 631.

129

See 15 U.S.C. § 77k(a) (providing liability where “any part of the
registration statement . . . contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to make
the statements therein not misleading”); Wallace, 2013 WL 1907685, at *11
(“allegations that statements were ‘materially false or misleading’ and contained
‘untrue statements of material fact’ do not necessarily sound in fraud because such
allegations simply track the language of Section 11 and 12(a)(2)”); Wachovia, 753
F. Supp. 2d at 375 (same).
130

Refco, 503 F. Supp. 2d at 631.

131

Id. at 632.
35

of fraud,” and “the wording and imputations of the complaint are classically
associated with fraud.” 132
In this case, the Section 11 claims are not in fact “premised on
allegations of fraud.”133 As discussed above, phrases like “materially false and
misleading” simply track the language of the statute and do not necessarily sound in
fraud.134 Similarly, Plaintiffs’ assertion that, “in the exercise of reasonable care, the
Individual Defendants knew or should have known”135 of the misstatements or
omissions does not constitute an allegation of fraud, but rather of negligence. In
fact, Plaintiffs repeatedly disclaim any allegation of “scienter or fraudulent intent”
in connection with their Securities Act claims.136 Finally, the Complaint addresses

132

Rombach, 355 F.3d at 171–72. Accord Refco, 503 F. Supp. 2d at 632
(Rule 9(b) applies where the “gravamen of the complaint is plainly fraud”);
Expedior Creditor Trust v. Credit Suisse First Boston (USA) Inc., 341 F. Supp. 2d
258, 269 (S.D.N.Y. 2004) (“[A] claim sounds in fraud when, although not an
essential element of the claim, the plaintiff alleges fraud as an integral part of the
conduct giving rise to the claim.”).
133

Rombach, 355 F.3d at 171–72.

134

See Pl. Opp. at 19; Wallace, 2013 WL 1907685, at *11; Wachovia,
753 F. Supp. 2d at 375 (same).
135

Indiv. Mem. at 22 (citing CAC ¶ 95).

136

CAC ¶¶ 92, 105, 113. Note that bare disclaimers alone are
insufficient to shield claims that otherwise sound in fraud. See Refco, 503 F. Supp.
2d at 633; Axis Capital Holdings, 456 F. Supp. 2d at 598; JP Morgan, 363 F. Supp.
2d at 635.
36

the Securities Act claims and the Exchange Act claims in completely different
sections. Plaintiffs may “plead Section 10(b) fraud and Section 11 negligence
claims as alternatives, as long as the complaint is organized in a way that allows the
court to determine which allegations support which claim.”137
Defendants further argue that Plaintiffs’ Securities Act claims are
subject to Rule 9(b) because they are based on the same facts as the Section 10(b)
claims.138 However, “the fact that the alleged misstatements supporting the Section
11 and 12(a)(2) claims are the same as those in the Section 10(b) claims is not
dispositive.”139

137

Wallace, 2013 WL 1907685, at *11 (citing Refco, 503 F. Supp. 2d at
632). Accord City of Roseville, 814 F. Supp. 2d at 424 n.12 (“[c]omplete isolation
of Securities Act claims is not necessary” as long as the complaint’s structure
generally separates the allegations of fraud from the Section 11 and 12 claims);
NovaGold, 629 F. Supp. 2d at 290 (“Defendants identify no controlling authority
finding that Securities Act allegations, when plead entirely separately from
Exchange Act allegations, and accompanied by a disclaimer explaining that they
sound in negligence, in fact sound in fraud.”).
138

See Indiv. Mem. at 21 (citing Caiafa v. Sea Containers Ltd., 331 Fed.
App’x 14, 16 (2d Cir. 2009) (applying Rule 9(b) because “plaintiffs’ Section 11
claim relies on the same factual allegations that served as a basis for their Section
10(b) claim”)). However, Caiafa is an unpublished summary order and includes
only one sentence of analysis on the topic.
139

Wallace, 2013 WL 1907685, at *11 (citing In re IAC/InterActiveCorp.
Secs. Litig., 695 F. Supp. 2d 109 (S.D.N.Y. 2010)).
37

Ultimately, “unless a plaintiff specifically pleads a claim of fraud,”140
Section 11 claims “need not satisfy the heightened particularity requirements of
Rule 9(b)”141 and impose only “‘a relatively minimal burden on a plaintiff.’”142 The
mere act of pleading violations of Sections 10(b), 11, and 12 in the same complaint
does not automatically subject the Section 11 and 12 claims to a higher pleading
standard.143 For the foregoing reasons, the Individual Defendants’ motion to
dismiss the Section 11 and 12 claims against Arntzen and Itkin is denied.
B.

Section 10(b) and Rule 10b-5 of the Exchange Act
1.

Motive and Opportunity

To demonstrate motive under the first prong, Plaintiffs must show that
defendants “benefitted in some concrete and personal way from the purported

140

Employees Ret. Sys., 804 F. Supp. 2d at 152.

141

Panther Partners, 681 F.3d at 120.

142

Id. (quoting Litwin, 634 F.3d at 716).

143

To hold otherwise would discourage plaintiffs from bringing Section
10(b) and Section 11 claims in the same lawsuit, which would result in the
potential inefficiency of multiple lawsuits.
38

fraud,”144 such as the opportunity to sell their own shares at artificially inflated
prices145 or other “concrete benefits.”146
The Complaint alleges that Arnzen and Itkin perpetrated the fraud in
order to “allow certain Company insiders to collectively sell shares of their
personally-held OSG common stock for gross proceeds of approximately $2.7
million during the Class Period.”147 Plaintiffs seem to abandon this claim
completely in their Opposition brief. Even if the argument is not deemed waived,
however, it is unconvincing. The Complaint did not allege that Arntzen or Itkin
personally traded in OSG securities during the Class Period, or that they benefitted
in any way from the sales of other “insiders.”148 In fact, there is evidence that

144

ECA and Local 134 IBEW Joint Pension Trust of Chi. v. JP Morgan
Chase Co., 553 F.3d 187, 198 (2d Cir. 2009) (citing Novak, 216 F.3d at 307–08).
145

See Cherry St., 573 F.3d at 108–09 (test generally met “‘when
corporate insiders [are] alleged to have misrepresented to the public material facts
about the corporation’s performance or prospects in order to keep the stock price
artificially high while they sold their own shares at a profit’”) (quoting Novak, 216
F.3d at 308).
146

Kalnit v. Eichler, 264 F.3d 131, 139 (2d Cir. 2001).

147

CAC ¶ 191.

148

See Russo v. Bruce, 777 F. Supp. 2d 505, 518 (S.D.N.Y. 2011)
(scienter not established where “the Complaint gives no indication as to why the
Individual Defendants would have been motivated to defraud investors in order to
enrich others, not themselves”); eSpeed, 457 F. Supp. 2d at 289–90 (scienter not
established against corporate officer defendants where other insiders sold stock,
39

Arntzen actually bought shares of OSG stock during the Class Period, which
undermines the likelihood that he knew about the company’s undisclosed tax
liability.149
Plaintiffs also allege that Arntzen and Itkin were motivated by a desire
to “facilitate OSG’s access to much needed capital at a time when the Company was
recording hundreds of millions of dollars in annual losses.”150 However, the Second
Circuit has indicated that goals “‘possessed by virtually all corporate insiders,’ such
as the desire to maintain a high credit rating for the corporation or otherwise sustain
the appearance of corporate profitability or the success of an investment, or the
desire to maintain a high stock price in order to increase executive
compensation,”151 are not sufficient to allege a personal motive under Section 10(b).

but they — despite being “well-positioned to reap profits from insider knowledge”
— did not). Cf. ECA, 553 F.3d at 198 (motive generally established “when
corporate insiders allegedly make a misrepresentation in order to sell their own
shares at a profit”).
149

See Indiv. Reply Mem. at 2. Because this information is publicly
available on Arntzen’s Form 4, it is properly considered on a motion to dismiss.
ATSI, 493 F.3d at 98 (courts may consider “public disclosure document[] filed with
the SEC”).
150

CAC ¶ 187.

151

Cherry St., 573 F.3d at 109. Accord ECA, 553 F.3d at 198; Kalnit,
264 F.3d at 139; Acito v. IMCERA Grp., Inc., 47 F.3d 47, 54 (2d Cir. 1995) (if the
desire to inflate stock price were sufficient to constitute scienter, “virtually every
company in the United States that experiences a downturn in stock price could be
40

Plaintiffs concede that “the need to raise capital does not ordinarily
constitute an adequate motive under the motive and opportunity prong of the
scienter test,” but argue that in this case the Offering was “critical to OSG’s very
survival, as well as to the survival of Arntzen’s and Itkin’s jobs.”152 In such
circumstances, Plaintiffs allege, “the need for capital satisfies the motive
requirement.”153 However, the cases cited by Plaintiffs do not establish any
exception to the general law in this Circuit.154 Furthermore, “[t]o allege a motive . .
. a plaintiff must do more than merely charge that executives aim to prolong the
benefits of the positions they hold.”155 Indeed, even “the desire to maintain a high
credit rating to raise money that is ‘desperately needed’ or necessary ‘to protect the

forced to defend securities fraud actions”); Gissin v. Endres, 739 F. Supp. 2d 488,
512 (S.D.N.Y. 2010) (finding company’s desire to “complete the offering” too
generalized to establish scienter).
152

Pl. Opp. at 40–41.

153

Id. at 42.

154

See In re Cabletron Sys. Inc., 311 F.3d 11, 39 (1st Cir. 2002) (finding
that allegations of insider trading and fraudulent warehousing activities, along with
company’s dire need for capital, stated a claim for relief); In re Initial Pub.
Offering Secs. Litig., 544 F. Supp. 2d 277, 294 (S.D.N.Y. 2008) (finding that
various allegations, including motive to raise capital, supported inference of
scienter against issuer Defendants). Note that neither complaint was sustained
solely or even primarily based on the desire to raise capital, and IPO concerned an
issuer defendant instead of officer/director defendants.
155

Kalnit, 264 F.3d at 139.
41

very survival’ of a company” is “too generalized a motive plead securities fraud.”156
For the above reasons, Plaintiffs have not alleged a legally sufficient motive for
Arntzen and Ikin to commit securities fraud.
2.

Strong Circumstantial Evidence

Plaintiffs point to various facts supporting the theory that Arnken and
Itkin might have known or recklessly disregarded the Company’s tax liabilities
under Section 956. Specifically, they contend that Arnzen and Itkin understood
other related tax provisions applicable to the Company157 and appreciated the
importance of tax policy to OSG’s bottom line.158 Plaintiffs further argue that the
sheer size of the tax liability, the length of time that it went undisclosed, the

156

In re PXRE Grp., Ltd., Secs. Litig., 600 F. Supp. 2d 510, 532
(S.D.N.Y. 2009). Accord Gissin, 739 F. Supp. 2d at 499, 512–13 (despite
company’s “crippling liquidity problem,” desire to complete an offering did not
support inference of scienter); In re Elan Corp. Secs. Litig., 543 F. Supp. 2d 187,
216 (S.D.N.Y. 2008) (“Any corporation would be motivated to make a profit, to
avoid bankruptcy, or to finance the successful launch of a promising product.
Similarly, corporate executives are generally motivated to maximize bonus
compensation. These allegations do not support an inference of scienter.”).
157

See CAC ¶ 183 (Defendants were “aware of the principal U.S. tax
laws applicable to the Company, the subjectivity of foreign source income to U.S.
federal income taxes and the ‘critical’ nature of OSG’s policy of accounting for
income taxes.”). See also id. ¶ 184 (senior OSG officials “spent significant
resources trying to persuade federal officials to enact changes in the tax law that
were favorable to the Company”).
158

See Pl. Opp. at 40.
42

presence of GAAP violations, and Defendant Andreas’ resignation from the Board
collectively constitute strong circumstantial evidence of scienter.159 Even taken
collectively, however, the above arguments do not establish “strong circumstantial
evidence” of scienter.
The allegations that Arnzen and Itkin must have known about OSG’s
Section 956 liability because they were well-informed about other tax provisions
affecting the Company is unpersuasive. The tax provisions that Arntzen and Itkin
allegedly discussed in detail at various meetings and conference calls are largely
unrelated to Section 956.160 It is certainly plausible that Arntzen and Itken might
have understood certain tax provisions affecting the Company — especially highprofile changes in the law that yielded large tax breaks for OSG — without
appreciating the intricacies of Section 956. Similarly, the allegation that defendants
understood the importance of tax policy in general does not suggest that they
understood the content of each section of the tax code applicable to the Company.
Plaintiffs do not allege that Section 956’s applicability was so obvious that an

159

See id.

160

See id. (Arntzen “discussed how new tax laws would allow OSG to
carry back 2009 tax losses” on a conference call in 2009, while Itkin “told analysts
that the Company recognized a tax benefit for $30.5 million during that quarter. . .
and described how the Worker, Homeownership, and Business Assistance Act of
2009 (“WHBA Act”) was significant to the Company.”).
43

executive’s ignorance of the provision would be difficult to believe, or else highly
irresponsible. To the contrary, the nuances of Section 956 seem to have eluded
multiple independent auditors in addition to Arntzen and Itkin. Even if Arntzen and
Itkin understood that Section 956 triggers income tax liability when a foreign
subsidiary guarantees the debt of a parent company, they would also have had to
understand that OIN’s “joint and several” liability for OSG’s debt constituted a
“guarantee.” Thus, Arntzen and Itkin’s familiarity with certain other tax provisions
relevant to OSG does little to establish circumstantial evidence of scienter.
Plaintiffs also attempt to impute knowledge of Section 956 to Arntzen
and Itkin under the “core operations doctrine.”161 However, even if the validity of
the doctrine were undisputed,162 it would not apply here. The Company’s core

161

Id. at 44 (“Given the centrality of its foreign operations to the health
of its business, and the importance of U.S. tax policy to those foreign operations, it
is entirely fair to impute knowledge of the fraud to Arntzen . . . and Itken.”).
162

See Glaser v. The9, Ltd., 772 F. Supp. 2d 573, 596 (S.D.N.Y. 2011)
(questioning whether the “core operations” doctrine “remains good law” after the
PSLRA); eSpeed, 457 F. Supp. 2d at 294 n.209, 210 (citing cases that have
rejected the “core operations” doctrine since the enactment of the PSLRA).
44

operation is shipping, not tax policy.163 Thus, knowledge of OSG’s tax liabilities
under Section 956 may not properly be imputed to Arntzen and Itkin.164
Plaintiffs further argue that Defendant Andreas’s resignation from the
Board of Directors provides evidence of Arntzen and Itkin’s scienter. However,
Andreas resigned from the Board on October 3, 2012, only a month before the
Company filed for bankruptcy.165 Thus, although Andreas’s resignation suggests
that Artnzen and Itkin knew about the tax issue in October of 2012, it does nothing
to indicate knowledge during the March 2010 Offering or any portion of the Class
Period prior to that time. In fact, the most likely inference is that members of the
Board first became aware of the “tax issue” shortly before Andreas resigned over it.

163

See JP Morgan, 363 F. Supp. 2d at 628 (“[P]laintiffs allege no facts
suggesting that the accounting treatment of the Mahonia transactions as trades
rather than as loans was at the core of JPM Chase’s business.”).
164

See Board of Trs. of Ft. Lauderdale Gen. Emps.’ Ret. Sys. v. Mechel
OAO, 811 F. Supp. 2d 853, 873 (S.D.N.Y. 2011) (courts in this district “have long
held that accusations founded on nothing more than a defendant’s corporate
position are entitled to no weight”) (quoting Plumbers & Steamfitters Local 773
Pension Fund v. Canadian Imperial Bank of Commerce, 694 F. Supp. 2d 287, 300
(S.D.N.Y. 2010)).
165

See CAC ¶ 40.
45

Finally, Plaintiffs contend that the sheer size of the tax liability, and the
length of time that it went undisclosed, support an inference of scienter.166
Although both factors are properly considered, they are generally not persuasive
absent more concrete evidence of knowledge or recklessness.167 Additionally, the
duration of a misstatement or omission could actually undercut the inference of
scienter in certain circumstances. Plaintiffs do not allege that Artnzen and Itkin
concealed the facts underlying OSG’s tax liability — namely the existence of the
loan agreements involving OIN or the “joint and several” language.168 Given that
this information was available to the public as well as OSG’s two auditors, the

166

See, e.g., In re Scholastic Corp. Secs. Litig., 252 F.3d 63, 73 (2d Cir.
2001) (holding that $13 million pre-tax special charge “lends yet more support to
the notion that defendants had knowledge”); Rothman v. Gregor, 220 F.3d 81, 92
(2d Cir. 2000) (the magnitude of a $73.8 million write-off supported inference of
scienter); In re Alstom SA Secs. Litig., 406 F. Supp. 2d 433, 460 (S.D.N.Y. 2005)
(“significant length of time (several years) during which the arrangements were not
disclosed” supported strong inference of scienter); In re Am. Bank Note
Holographics, Inc. Secs. Litig., 93 F. Supp. 2d 424, 446–47 (S.D.N.Y. 2000)
(noting “the admitted falsity of the statements, the extraordinary degree to which
they were false, the length of time (covering several years) that the statements were
false”).
167

See Glaser, 772 F. Supp. 2d at 596–97 (“[A]bsent facts indicating that
defendants knew of the falsity of their statements, that an eventual write-off was
large does not support the required strong inference of misbehavior.”); PXRE Grp.,
600 F. Supp. 2d at 545 (“[I]t is well established that the size of the fraud alone does
not create an inference of scienter.”).
168

See Indiv. Mem. at 19.
46

length of time before the error was discovered actually lends support to the theory
that Section 956’s applicability was unclear, rather than the theory that Arntzen and
Itkin concealed an obvious or known tax liability. In the absence of other
persuasive circumstantial evidence of scienter, the size and duration of the tax error
are insufficient to state a claim under Section 10(b).
Plaintiffs also argue that the existence of GAAP violations is indicative
of scienter.169 However, most courts have found GAAP violations to be insufficient
to state a claim.170 Furthermore, the sole basis for alleging GAAP violations here is
the magnitude of the tax error, which is duplicative and adds little to the scienter
analysis.171
Overall, Plaintiffs cannot demonstrate that the inference of scienter in
this case is “at least as compelling as any opposing inference of nonfraudulent

169

See Varghese v. China Shenghuo Pharm. Holdings, Inc., 672 F. Supp.
2d 596, 608 (S.D.N.Y. 2009) (GAAP violations contribute to inference of
scienter).
170

See ECA, 553 F.3d at 200 (“Allegations of GAAP violations or
accounting irregularities, standing alone, are insufficient to state a securities fraud
claim.”); Chill v. General Elec. Co., 101 F.3d 263, 270 (2d Cir. 1996)
(“Allegations of a violation of GAAP provisions or SEC regulations, without
corresponding fraudulent intent, are not sufficient to state a securities fraud
claim.”); Worlds of Wonder, 35 F.3d at 1426 (holding that the “failure to follow
GAAP, without more, does not establish scienter”) (citations omitted).
171

See, e.g., CAC at ¶ 53.
47

intent.”172 Significantly, Plaintiffs have not pointed to any specific documents,
conversations, or exchanges suggesting that Arntzen and Itkin knew about the
Company’s Section 956 liability, or even any sources from which they might have
learned about it.173 Moreover, given that two professional accounting firms
overlooked OSG’s tax liabilities under Section 956, it cannot be inferred that the
applicability of Section 956 was “so obvious that the defendant[s] must have been
aware of it,”174 especially given that neither defendant is a tax expert.175 At best, the
Complaint alleges that the defendants were negligent in failing to identify and
disclose the tax liability sooner. Finally, Arntzen actually bought OSG securities

172

Tellabs, 551 U.S. at 324.

173

See Davidoff v. Farina, No. 04 Civ. 7617, 2005 WL 2030501, at *17
(S.D.N.Y. Aug. 22, 2005) (“[T]o the extent plaintiffs claim that defendants had
knowledge of specific facts that rendered their public statements misleading, they
must supply some factual basis for the allegation that the defendants [gained this
knowledge] at some point during the time period alleged.”); eSpeed, 457 F. Supp.
2d at 292 n.196 (“Where plaintiffs contend defendants had access to contrary facts,
they must specifically identify the reports or statements containing this
information.”).
174

Cherry St., 573 F.3d at 109 (quotation marks and emphasis omitted).
Accord Kalnit, 264 F.3d at 142.
175

See Kushner v. Beverly Enters., Inc., 317 F.3d 820, 829 (8th Cir.
2003) (declining to find an inference of scienter because it was “telling” that the
company’s “outside auditors did not question its accounting practices”).
48

during the Class Period, which undercuts the inference of scienter.176 The more
compelling inference based on these facts is that Arntzen and Itkin learned of the
Company’s liability under Section 956 shortly before Andreas’s resignation in
October 2012. Thus, Plaintiffs have failed to adequately allege scienter under the
PSLRA, and the claims against Arntzen and Itkin under Section 10(b) and Rule
10b-5 are dismissed.
C.

Section 20(a) of the SEA
“Any claim for ‘control person’ liability under § 20(a) of the Exchange

Act must be predicated on a primary violation of securities law.”177 Because
Plaintiffs have failed to alleged a primary violation under Section 10(b), their claim
under Section 20(a) must also be dismissed.
D.

Leave to Amend
For the foregoing reasons, Plaintiffs’ Exchange Act claims against

Arntzen and Itkin are dismissed for failing to adequately allege scienter under the
PSLRA. Because leave to amend should be freely given “when justice so
requires,”178 I grant Plaintiffs leave to amend to correct the deficiencies noted in
176

See Indiv. Reply Mem. at 2.

177

Pacific Inv. Mgmt Co. LLC v. Mayer Brown LLP, 603 F.3d 144, 160
(2d Cir. 2010).
178

Fed. R. Civ. P. 15(a)(2).
49

this Opinion if they can do so in compliance with their obligations under Rule 11.
Any repleading must be made within thirty days of the date of this Order.

V.

CONCLUSION
For the foregoing reasons, the motions to dismiss by E&Y, PwC, and

the Underwriter Defendants are denied in full. The Individual Defendants' motion
to dismiss is granted with respect to the Exchange Act claims and denied with
respect to the Securities Act Claims. It is further Ordered that Plaintiffs are granted
leave to replead within thirty days of the date of this Order. The Clerk of Court is
directed to close these motions (Docket Nos. 85, 86, 95, 102).

SO ORDERED:

Dated:

New York, New York
September IV, 2013

50

-AppearancesFor Lead Plaintiffs:
Samuel H. Rudman, Esq.
David A. Rosenfeld, Esq.
Mark T. Millkey, Esq.
Christopher M. Barrett, Esq.
Robbins Geller Rudman & Dowd LLP
58 South Service Road, Suite 200
Melville, NY 11747
[phone]
For Defendant Overseas Shipholding Group, Inc.:
Lewis J. Liman, Esq.
Elizabeth Vicens, Esq.
Cleary Gottlieb Steen & Hamilton, LLP
One Liberty Plaza
New York, NY 10006
[phone]
For Defendant Morten Arntzen:
Scott B. Schreiber, Esq.
Craig A. Stewart, Esq.
Arnold & Porter
Thurman Arnold Building
555 Twelfth Street, N.W.
Washington, DC 20004-1206
[phone]
For Defendant Myles R. Itkin:
David H. Kistenbroker, Esq.
Joni S. Jacobsen, Esq.
Ashley J. Burden, Esq.
Neil A. Steiner, Esq.
51

Dechert LLP
115 S.Lasalle Street
Chicago, IL 60661
[phone]
For Consolidated Defendants G. Allen Andreas, III, Alan R. Batkin, Thomas
P. Coleman, Charles A. Fribourg, Stanley Komaroff, Solomon N. Merkin, Joel
I. Picket, Ariel Recanati, Oudi Recanati, Thomas F. Robards, Jean-Paul
Vettier, Michael J. Zimmerman:
Richard A. Rosen, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019
[phone]
Fax: [phone]
For Consolidated Defendants Citigroup Global Markets Inc, Deutsche Bank
Securities Inc., Goldman, Sachs & Co., HSBC Securities (USA) Inc., ING
Financial Markets, LLC, Morgan Stanley & Co. LLC (f/k/a Morgan Stanley &
Co. Incorporated), DNB Markets, Inc. (f/k/a DnB NOR Markets, Inc.):
Adam Selim Hakki, Esq.
Daniel Hector Rees Laguardia, Esq.
Stuart Jay Baskin, Esq.
Shearman & Sterling LLP
599 Lexington Avenue
New York, NY 10022
[phone]
Fax: [phone]
For Consolidated Defendant PriceWaterhouseCoopers LLP:
Jamie Lynne Wine, Esq.
Miles Norman Ruthberg, Esq.
Kevin Michael McDonough, Esq.
Latham & Watkins, LLP
885 Third Avenue, Suite 1000
52

New York, NY 10022
[phone]
Fax: [phone]
For Consolidated Defendant Ernst & Young:
Stanley J. Parzen, Esq.
Mayer Brown LLP (Chicago)
71 South Wacker Drive
Chicago, IL 60606
[phone]
Fax: [phone]

53